The most important aspect of building your stock portfolio is diversity. If you invest all of your money in one industry and that industry suffers losses, you won’t have funds in other stocks to offset those losses.
You also shouldn’t put all your eggs into the same type of stocks such as high risk high return growth stocks. Your portfolio should include growth stocks, value stocks, and low risk dividend stocks. Usually investment professionals recommend a 60% stock allocation and 40% bond allocation. Unfortunately in recent years risk-free bond prices skyrocketed and bond yields fell below the expected inflation rate. We don’t think it is a good idea to be invested in low-risk long-term Treasury bonds as these yield less than 1.7% and bond prices have been declining over the last 12 months. As inflation rate picks up we believe bond prices will continue their decline. That’s why we like dividend stocks instead of Treasury bonds.
Below are some of our favorite dividend stocks of 2021 and why they’re bound to grow.
3 Factors that Determine a Strong Dividend Stock
If you are looking for stocks that will consistently yield a substantial dividend, consider a few indicators:
1. Consistent Revenue Growth: Look for the company that is continually investing in inventory and selling more products. Watch for reasons why the product is needed or greatly desired over a long period of time and buy stocks of those companies.
2. A Solid Payout Ratio: This shows that the company has a good dividend policy that illustrates that they value their shareholders and pay them back. How many years in a row has a company been able to pay its dividends to its investors?
3. Predictable Net Income Growth: In order to invest in a dividend stock, you want to find a company that meets all three of these factors. You may have a company with huge demand and increase of revenue but doesn’t turn around a significant net income. Find the stocks that have shown a pattern of consistent net income growth along with their revenue growth.
We can provide you with the top 10 dividend stocks for 2021, but it’s vital to understand the process to pivot your investments with the changing times. These 3 factors will help you have autonomy for choosing what stocks you think are best for your portfolio.
Top 10 Dividend Stocks
Take a look at these top dividend stocks that may see big surges in 2021. With representative stocks from all industries, you can see an example of a diverse investment portfolio. All current dividend yields are above 3%, and each stock meets the factors that we have listed above. If you’re learning how to make your money work for you, dividend stocks are one of the best options.
Here are the top 10 dividend stocks to buy now, sorted by dividend yields (ascending):
Coca-Cola Company (KO) is a consistently high-performing dividend stock throughout the years. The company is known to increase its payout ratio to shareholders. Their profits continue to grow. Coca-Cola does not just offer sugary drinks that could fall in demand as healthier lifestyles increase. They offer a variety of drinks, including healthy options. Coca-Cola has built a reputation for taking care of its investors.
The Georgia-based beverage giant recently announced better-than-expected financial results for the first quarter. Coca-Cola reported earnings of $2.25 billion, or 52 cents per share for the three months ended April 2, slightly below $2.78 billion, or 64 cents per share in the comparable period of 2020. On an adjusted basis, the company earned 55 cents per share, surpassing the consensus forecast of 50 cents per share.
Revenue for the quarter came in at $9 billion, down 5 percent from $8.60 billion in the year-ago quarter. Analysts on average were expecting Coca-Cola to report revenue of $8.68 billion. The operating margin in the quarter was 30.2 percent, as compared to 27.7 percent in the same period of 2020.
Speaking on the results, CEO James Quincey said in a statement, “We are encouraged by improvements in our business, especially in markets where vaccine availability is increasing and economies are opening up, and we remain confident in our full year guidance.”
Coca-Cola also issued its earnings guidance for 2021. The company expects its earnings to grow in the range of high-single digits to low-double digits. Comparatively, analysts on average were looking for EPS growth of 10 percent for the year.
In the finance sector, this bank has a lot of potential because of the current federal fiscal policy. Because the government is not raising rates, 2021 is looking bright for the financial industry. Out of all the financial banks, Comerica has a quality dividend policy that shows they value their shareholders.
At the end of the fourth quarter, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in Comerica Incorporated (NYSE:CMA), a change of 27% from one quarter earlier. As aggregate interest increased, key hedge funds have been driving this bullishness. Gillson Capital, managed by Daniel Johnson, established the largest position in Comerica Incorporated (NYSE:CMA). Gillson Capital had $16.6 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also made a $15 million investment in the stock during the quarter. The other funds with brand new CMA positions are Mark Lee’s Forest Hill Capital, Sander Gerber’s Hudson Bay Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Pfizer Inc. ranks 8th on our list of the top 10 dividend stocks to buy in 2021. Healthcare is a booming industry, and Pfizer is thriving. Their dividends continually increase, showing that they value their shareholders. Pfizer has proven to be innovative and efficient with its COVID-19 vaccine to reconfirm its quality reputation in healthcare. Since vaccinating children is one of the foremost challenges in order to get life back to normal across the world, the company has released a study detailing that the vaccine it produces is highly effective for children aged between 12 and 14 years. The study is short in scope, and British firm AstraZeneca has promised a large clinical trial for its vaccine which will begin soon. Past vaccine trials have tended to concentrate on older patients since that age group was the most vulnerable to the coronavirus.
At the end of the fourth quarter, a total of 63 of the hedge funds tracked by Insider Monkey were long Pfizer Inc. (NYSE:PFE), a change of -5% from the previous quarter. The largest stake in Pfizer Inc. (NYSE:PFE) was held by Diamond Hill Capital, which reported holding $337.9 million worth of stock at the end of December. It was followed by Two Sigma Advisors with a $268.9 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and OrbiMed Advisors. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to Pfizer Inc. (NYSE:PFE), around 4.9% of its 13F portfolio. Kahn Brothers is also relatively very bullish on the stock, dishing out 4.33 percent of its 13F equity portfolio to PFE.
This real estate investment trust leases commercial properties to high-earning companies like Home Depot and Walmart. They have shown consistent growth in dividend payouts and established a solid reputation in the real estate sector. As real estate continues to boom, you can watch this company soar.
Realty Income Corporation (NYSE: O) is a California-based real estate investment trust engaged in house acquisition, portfolio management, asset management, credit research, real estate research, legal, finance and accounting. It has a market cap of over $24 billion and posted more than $1.6 billion in revenue in December 2020. It is a top rated monthly dividend stock with a yield of 4.29%. The three year dividend growth for the trust stands at an impressive 10.41%. It has a payout ratio of 83.56%. Realty Income is ranked second on our list of 10 best monthly dividend stocks for 2021.
At the end of the fourth quarter of 2020, 24 hedge funds out of 887 in the Insider Monkey database held stakes in General Electric, the same as in Q3 2020. The total value of the shares held by these hedge funds in Q4 2020 was over $238 million, down from $290 million in the preceding quarter. Out of the hedge funds being tracked by Insider Monkey, Two Sigma Advisors held the most shares – 987,364 – worth more than $61 million. Millennium Management was 2nd with 840,957 shares worth almost $52 million.
Verizon has massive revenue and consistent growth. They have a competitive dividend policy. The communications industry is very dividend-friendly, and Verizon is leading by example. The 3 factors apply here with increased revenue, a consistent payout ratio, and predictable net income growth.
The company was the lead bidder in a recent government auction for 5G airwaves in the U.S, with a $45 billion offer. The company is already offering 5G services in many states. Earlier this year, Verizon expanded 5G network to some parts of Sacramento, Seattle and Pensacola. The stock is up 10% over the last 12 months.
Warren Buffett’s Berkshire Hathaway currently holds 146.7 million shares of Verizon that amounts $8.62 billion. VZ occupies 3.19% of Buffett’s total portfolio.
Here is what Mott Capital Management has to say about Verizon Communications Inc. in their Q4 2020 investor letter:
“Verizon finished the year lower by around 4.3% and has been a hard holding over the past 6 years. It has gone nowhere and has been the one stock I struggle with. However, 5G has finally arrived. If 5G can deliver on the promise I think it can, then Verizon should eventually come around. I remain hopeful.”
